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Searching for the Best Deal: How Students and Their Parents View Income Share Agreements

For high school students and their parents, paying for college can be daunting, particularly if student loans are a factor. Some advocates have suggested that income share agreements (ISAs) may help these families finance postsecondary education. ISAs are an alternative form of financial aid in which students pledge a portion of their future earnings in exchange for money to pay for college now. Experts and advocates have argued that ISAs can reduce the financial risk associated with student debt and signal differences in program quality through more favorable ISA terms.

This third brief in a series about ISAs explores the characteristics of financing options that students and parents desire. We conducted 21 paired interviews with high school students and parents from a wide variety of backgrounds. These participants’ views indicate possible reactions to ISAs and highlight issues that ISA funders and others will need to consider if the ISA market is to grow.

Key Findings

Students and parents desire flexibility, especially the ability to renegotiate the terms of an arrangement or accelerate payments.

Students and parents want to be able to predict how much they will pay in total. Both also are concerned that the total payment amount could be very large if students are successful.

Students are not open to using information about college value, as conveyed by variations in ISA terms, to make decisions about which institution to attend or which major to pursue. They highlighted nonfinancial factors, such as long-term happiness, among their considerations.

However, students and parents believed that others would change their decisions if presented with similar information.

Related Work

The second in a series about income share agreements, this brief addresses the likely impact of ISAs on how campus financial aid offices will award student aid and the implications of ISAs for campus reporting on student aid, drawing on expertise from financial aid officers and the National Association of Student Financial Aid Administrators.

This first brief in a series about income share agreements looks at the potential of ISAs to serve low-income undergraduate students by examining the underwriting criteria used to select ISA recipients, estimating the size of the ISA market given its current structure and funding providers, and estimating the number of students who might plausibly be offered an ISA in an expanded market.

Many students rely on student loans as a way of covering college expenses and for many, loan repayments exceed their ability to repay, leading to financial distress or default. Income share agreements are an income-driven college financing option in which an investor provides a student with the funds required to pay for college and, in return, the student promises to pay a percentage of their income for a number of years after leaving school. These resources offer a better understanding of how, and for whom, income share agreements may work.

A relatively new college funding model designed as an alternative to loans is unlikely to help most students, particularly poor students who need it most, according to a new study.
The AIR study examines the potential of income share agreements, which essentially allow investors to buy stock in students, to combat the college loan crisis that is leaving thousands of graduates and drop-outs each year with crushing debt.

In this blog post, AIR scholar Audrey Peek explores income-share agreements (ISAs), a private form of financial aid that offers cash for college now in return for a percentage of students’ future earnings over a set time. Peek contends ISAs are an innovative way to pay for college that might benefit some students, but which aren’t likely to reach their full potential without fundamentally rethinking who they could serve and how funders are repaid.

As Purdue University and other schools prepare to offer income share agreements (ISAs) to students, these new programs could put students in a sticky situation. AIR researcher Audrey Peek explains that if they don’t understand the tradeoffs of loans versus ISAs, students could end up replacing their federal loans with much more expensive ISAs.